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Thursday, 19 January 2017

(The Star) Ekovest surges after winning highway concession

PETALING JAYA: Shares of Ekovest Bhd surged to an all-time high of RM2.60 yesterday after securing its third highway concession, the Duke2A, that will be linked to the existing Duta-Ulu Kelang Expressway (Duke).

Its shares closed eight sen, or 3.17%, higher at RM2.60 with 5.84 million shares traded.

UOB Kay Hian Research said Ekovest’s outstanding order book could surpass RM10bil in the next 18-24 months after clinching its latest job, the Duke2A.

“Presently, Ekovest’s outstanding construction order book stands at about RM5.4bil, which would ensure smooth earnings delivery for the construction division for the next four years. The bulk of the order book relates to the construction of the Setiawangsa-Pantai Expressway (SPE) as well as the recently secured Pan Borneo Highway in Sarawak.

“Assuming the group manages to clinch the bulk of the RM6.32bil worth of construction jobs for Duke2A (like it did for SPE), its outstanding construction order book could easily exceed RM11bil (implying a whopping 13.1 times order book cover), which would be progressively recognised until 2023,” UOB Kay Hian said in a report.

On Tuesday, Ekovest announced that subsidiary, Lebuhraya Duke Fasa 2A Sdn Bhd, had received a letter from the government on the principal approval of the proposed privatisation of the 75.2-km Kampung Baru Link, Istana Link and Kapar Link Expressway (Duke2A). The estimated project cost for the highway concession is RM6.32bil.

UOB Kay Hian said Ekovest would need to source the funding for the project, which would most likely be a combination of bonds and equity.

Assuming an 80:20 debt-to-equity ratio, Ekovest would need to raise RM5.06bil from bonds and the remaining RM1.26bil from internal funds.

“Presently, its cash pile stands at about RM623mil, including the incoming net receipt of RM486mil from the 40% divestment in Duke 1 and 2 (after paying out special dividends). Also, the potential listing of Duke 1 and 2 in 2018 could provide additional funding for the group,” UOB Kay Hian noted.

The group will also discuss with the government the terms of the concession agreement, which would include the tenure of the concession as well as the toll rates for the new highway.

“Given that the major terms of the concession have yet to be disclosed, which include the period of the concession and toll rates (pending discussions with the government), the net present value from this project is uncertain at this juncture. However, our back-of-the-envelope calculation shows RM3bil-RM4bil and a high single-digit internal rate of return,” UOB Kay Hian said.

Taking the project commencement of the SPE as a benchmark, construction works for Duke2A could begin as early as the third quarter of 2018, the research house said.

It added that Duke2A would complement the existing Duke 1 and 2, as well as the SPE. The Duke2A (via the Istana Link) would provide a missing link between Duke 1 and SPE, while the Kampung Baru link of Duke2A would allow for seamless connection from Kampung Baru to Duke 2 and thereafter to Duke 1.

UOB Kay Hian has maintained a “buy” call on Ekovest with a target price RM3.13.